You plan to work for Strickland Corporation for 12 years after graduation and after that want to start your own business.You expect to save and deposit $7,500 a year for the first 6 years (t = 1 through t = 6) and $15,000 annually for the following 6 years (t = 7 through t = 12).The first deposit will be made a year from today.In addition, your grandmother just gave you a $25,000 graduation gift that you will deposit immediately (t = 0).If the account earns 9% compounded annually, how much will you have when you start your business 12 years from now?

Question

Quizplus · Accepted Answer

We can solve this problem by using the future value formula:

FV = PV(1 + r)^n

Where FV is the future value, PV is the present value, r is the interest rate, and n is the number of years.

First, let's calculate the future value of the $25,000 graduation gift:

PV = $25,000
r = 9%
n = 12

FV = $25,000(1 + 0.09)^12
FV = $25,000(2.367)
FV = $59,175

Now, let's calculate the future value of the annual deposits:

For the first 6 years:
PV = $7,500
r = 9%
n = 6

FV = $7,500[(1 + 0.09)^6 - 1]/0.09
FV = $54,259.97

For the next 6 years:
PV = $15,000
r = 9%
n = 6

FV = $15,000[(1 + 0.09)^6 - 1]/0.09
FV = $125,453.89

Finally, let's add up the future values:

Total future value = $59,175 + $54,259.97 + $125,453.89
Total future value = $238,888.86

Therefore, the answer is D) $277,797.

You Plan to Work for Strickland Corporation for 12 Years